August was another strong month for global stocks, with U.S. large-cap shares gaining 2.7%. Yet much of the month was spent reassessing where interest rates may be headed next. Treasury yields swung as the market digested changing expectations for Federal Reserve policy, while gold rallied and federal debt surpassed $40 trillion for the first time. Those moves reflected a market balancing economic resilience against inflation and fiscal concerns.
Markets
Global stocks advanced broadly in August. U.S. large-cap stocks gained 2.7%, while mid caps rose 0.2% and small caps declined 0.6%. Tech stocks helped drive August's gains, lifting growth stocks 3.6% compared to a 2.0% gain for value stocks. Outside the U.S., foreign developed stocks rose 2.0% and emerging markets led with a 3.4% gain.
August's growth rebound did not change the year-to-date leaderboard. Value stocks remain up 23.2% for the year compared with 4.5% for growth. Small caps have gained 20.8% despite their August decline, while mid caps are up 14.7%. International markets have also been strong, with foreign developed and emerging-market stocks returning 14.2% and 24.4%, respectively. Market leadership remains considerably broader than the handful of mega-cap technology companies that dominated recent years.
Bonds provided a modest positive return, with the Bloomberg U.S. Aggregate Bond Index gaining 0.4% in August. However, the index remains down 0.3% year-to-date, a reminder that elevated interest rates have continued to challenge bond prices even as their income potential has improved.
Treasury Rates
Treasury markets were more volatile than the month-end figures suggest. Intermediate-term yields fell sharply when the market briefly priced in more aggressive Federal Reserve rate cuts, then reversed as those expectations faded. The shift came as Treasury Secretary Scott Bessent expanded the Treasury's long-end buyback program and Federal Reserve Chair Kevin Warsh reiterated the Fed's commitment to bringing inflation back to its 2% target. The 10-year Treasury yield ultimately finished unchanged at 4.75%.
The 30-year Treasury yield briefly reached 5.3%, its highest level since 2007, before ending the month slightly lower. Meanwhile, U.S. federal debt surpassed $40 trillion for the first time. Together with gold's 10.0% rally, those developments kept attention focused on inflation, fiscal deficits, and the long-term cost of financing government debt. Treasury yields serve as benchmarks for mortgage rates, corporate financing, and other borrowing costs, making shifts in the bond market important well beyond fixed-income investors.
Looking Ahead
Markets enter September with broad year-to-date participation, and continued uncertainty around interest rates. September has historically been the S&P 500's weakest month, declining an average of 1.15% over the past 25 years. However, the index has subsequently posted an average fourth-quarter gain of 4.62%, with positive results in 21 of those 25 years. The market will be watching inflation, employment, Treasury yields, and Federal Reserve communication for the next clues.
